Ted Baker fits nicely

Christmas is always a make-or-break time for the retail industry, and this year the festive shopping season is possibly more important than ever. After a year of mixed fortunes for the industry - in which retail sales have swung between encouraging and disappointing - investors in the sector will be hoping that the Christmas sales performance justifies 2009's recovery in retailers' share prices.

Ted Baker is one retailer keeping its fingers crossed that shoppers open their wallets. The fashion chain's first-half profits fell 18 per cent as a strategic shift away from its wholesale operations means 80 per cent of its sales now go through its own shops, up from 75 per cent a year ago. That also means its business is now significantly more weighted towards the second half, so the first-half profit dip isn't really a cause for concern.

Part of the decision to take more sales in-house was to cut out partners that Ted Baker felt didn't fit the development of the brand. In an industry where image is everything, that's a sensible move, especially as many smaller independent retailers have been hit particularly hard by the downturn and may be under more pressure to turn to discounting.

But Ted's bosses are also looking to take direct control of concessions within department stores that were previously wholesale customers. That's also prudent, because directly-operated concessions are a low-risk channel - lease costs are linked to sales and overheads are lower than in stand-alone outlets, so profits are less vulnerable to weak trading. Using more direct sales channels also means Ted is less exposed to the caution of wholesale customers.

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Apart from the financial advantages, the decision to rely more on its own retail outlets means Ted's destiny is increasingly in the hands of its founder, Ray Kelvin, and his team. City analysts point out that Ted's performance over the next few years will be about "getting the detail right of lots of little things", in particular the extension of its ranges into new areas, such as childrenswear via licensees. There is little doubt that the team has the experience and, with no net debt, the company has the financial firepower to expand, particularly in North America where the brand is gaining traction.

Meanwhile, there are signs that suggest the more fashionable end of the high street is holding firm against economic weakness. Sales at middle market operator John Lewis have been on a rising trend for months now, while Burberry and Mulberry have both surprised the City with the strength of their recent trading. And, while there is a worry that rising mortgage costs and a muted UK economic recovery could hit retailers next year, Ted's loyal customer base meant that business has held relatively steady through some of the industry's darkest days. Like the wipe-clean Endurance range of suits it sells, its business has proved resilient.

Hopefully that pattern will be confirmed by Ted's statement for Christmas trading, which is due any day now. Of course, there is a risk that trading in the short-term may disappoint, but a strong trading update in November, which led analysts to up their earnings forecasts for 2009-10, suggests the business remains on an upward trajectory. Although the company said its overseas operation continued to face difficulties, early signs of recovery in the US retail market could mean Ted starts to make profits outside the UK.